Thursday's intra-day move in the Indian rupee against the US Dollar was no different from how it behaved the day before. Early morning weakness above 62.00 on spot, was met with exporter offers and alleged sovereign sales. As a result, the pair settled around 61.93/94 levels on spot, around 12 paise above previous day's close.

Volatility continues to plunge, as evident from the annualised 20-day rolling realised volatility which is now below 5%. On one hand the central bank has shown remarkable alertness in supporting the Indian rupee between 62.00 and 63.00 on spot, over the last few months. Such an active intervention from RBI has also encouraged exporters to join the race to buy rupee on dips. At the same time, a exceptionally low volatility has also increased the attractiveness of Indian debt instrument. As a result, we have seen demand for Indian debt paper on an unhedged basis.

Manufacturing activity in the euro zone expanded at the fastest pace since May 2011 in January. Euro zone index of manufacturing from purchasing managers’ index inched up to a seasonally adjusted 53.9 this month from a final reading of 52.7 in December.

On the index, a reading above 50.0 indicates industry expansion, below indicates contraction. As a result of strong PMI data, euro rallied sharply against the Indian rupee and so did the GBP. We can continue to see both these currencies strengthen against Indian rupee.

Over the near term, we expect Indian rupee in a range of 61:70 and 62:30/50 on spot against the US dollar with resistance at 62:10/15. Incase 61:70 fails to hold, then we can see a test of 61:45/50 levels.